Pot dispenser suing Modesto

March 04, 2008

A Modesto man who managed a medical marijuana dispensary on McHenry Avenue is suing the city, saying local authorities conspired with the federal government to shut down a lucrative business that raked in $6 million in less than two years.

Luke Scarmazzo, formerly the treasurer and secretary of California Healthcare Collective, filed the lawsuit Thursday in Stanislaus County Superior Court, seeking compensation for emotional distress, mental anguish and the loss of a job that paid him $13,000 a month.

Scarmazzo said he cooperated with local officials even as the City Council sought to ban pot clubs, turning over business records to show that everything was on the up and up. In return, he said, the city shared information with federal authorities, who shuttered the dispensary after a September 2006 raid.

In his lawsuit, Scarmazzo claims that the city worked in concert with the federal Drug Enforcement Agency so it could close the business without compensating its owners. He wants the city to pay the fair market value of the dispensary at the time it was closed — $3.8 million.

"This was something that was legal in our state," Scarmazzo said during a recent interview with former business partner Ricardo Montes and defense attorney Robert Forkner.

The lawsuit is an offshoot of a criminal case against Scar- mazzo, Montes and four others who face federal drug trafficking charges and are scheduled for trial April 15 in U.S. District Court in Fresno. Scarmazzo, 27, is free on $400,000 bail. Montes, 27, is free on $250,000 bail.

The dispensary operators said city officials negotiated in bad faith, because they said they wanted to shut the business down after a six-month amortization period, but were collecting information that fueled a federal investigation.

The extent of cooperation between city and federal officials is unclear, but in a letter to Scarmazzo's attorney last spring, Senior Deputy City Attorney David Cervantes acknowledged communications between local and federal officials.

Calls to the city attorney's office were not returned Tuesday.

The dispensary was a hot topic at City Council meetings in 2005 and 2006, with officials passing two zoning ordinances aimed at banning such businesses.

The federal drug raid came only five days after city officials conceded that they could not outlaw the nonprofit California Healthcare Collective, which had a three-year lease that ran until Jan. 20, 2008.

Scarmazzo and Montes said they sought legal advice, obtained a business license, paid state and federal taxes, and made sure every patient had a note from a doctor before they could purchase any marijuana.

But a 2005 ruling by the U.S. Supreme Court said a 1996 initiative that legalized marijuana for medical uses in California does not shield people from federal prosecution.

Since then, 90 dispensaries across the state have been raided, with criminal charges filed in about half of those cases, according to Americans for Safe Access, an Oakland-based medical marijuana advocacy group.

Most dispensary owners are hit with conspiracy and money laundering charges, but Scarmazzo and Montes are accused of something far more serious. The U.S. attorney's office has charged the two men with engaging in a continuing criminal enterprise, which carries a sentence of 20 years to life.

Only two charged in country

Scarmazzo said he thinks he and his partner have been singled out because he released a rap-style music video called "Business Man" only one month before his arrest. In that video, Scarmazzo flashes wads of cash and shakes his fist at a mock-up of the City Council.

Forkner agrees. "These two defendants are the only two defendants in the country who are facing a continuing criminal enterprise charge," he said.

A criminal complaint alleges that the dispensary took in $4.5 million from December 2004 to June 2006. Forkner said the dispensary generated $6 million in sales before it closed.

Scarmazzo and Montes referred to themselves as caregivers and said the marijuana was medicine. Investigators also found more than 1,100 marijuana plants, 13 guns, 60 pounds of processed marijuana and $140,000 in cash in houses associated with the defendants.

As they await trial, Scarmazzo is playing music gigs around the region and has released a second album, while Montes works a construction job. Both said they would have done things differently if they had understood that their business could be viewed as a continuing criminal enterprise.

"If a cease-and-desist order had come to us, we would have definitely complied," Scarmazzo said. "They came in with guns drawn and arrested everybody."